Economic Downturn and State Budget Woes Overshadow Seattle Health Care Market

Originally published as Community Report No. 3 by the Center for Studying Health System Change (HSC), Winter 2003. HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Economic Downturn and State Budget Woes Overshadow Seattle Health Care Market

In October 2002, HSC researchers visited Seattle to study the community's health system and how market changes were affecting consumers. The research team interviewed more than 85 leaders as part of the Community Tracking Study. Seattle was one of 12 communities HSC tracked through biennial site visits and triennial surveys, with earlier rounds in 1996, 1998, and 2000 providing the backdrop. The Seattle market covered King, Snohomish, and Island counties.

Seattle's health care landscape in late 2002 stood in stark contrast to two years earlier, when Washington's generous public insurance programs were expanding and employers offered rich benefits to attract workers in a tight labor market. A sharp local economic downturn and escalating health care costs had triggered a state budget crisis that threatened to unravel much of the progress made in extending health insurance coverage. These same pressures contributed to strained relationships between health plans and providers, leading consumers to worry about losing access to preferred physicians and hospitals.

State Budget Woes Force Cuts to Public Programs

After years of expanding public health insurance coverage, state policy makers were retrenching in response to a growing budget deficit and rising health care costs. Tax revenues had dropped precipitously because of the economic downturn, creating a projected shortfall of roughly $2 billion for the next two-year budget cycle beginning July 2003. State health programs funded at current levels -- including Medicaid, the Children's Health Insurance Program (CHIP), and the Basic Health Plan, a state-sponsored insurance program for low-income people without other coverage options -- accounted for 35 to 40 percent of the projected deficit.

The budget crisis stemmed partly from the success of earlier coverage expansions. Washington had generous eligibility standards -- 250 percent of the federal poverty level for children and 200 percent for the Basic Health Plan. When the state received nearly $800 million less in expected federal funding in 2002, it was forced to discontinue outreach funding, eliminate coverage for about 28,000 immigrants, shelve a planned eligibility expansion, and apply for a federal waiver that would allow premiums and copayment increases for some beneficiaries. Most observers concluded that more severe cuts were on the horizon.

Safety Net Under Strain

Concerns about access to care grew as providers reduced charity care and limited the number of Medicaid and Medicare patients they would see. Community health centers and public hospitals faced rising demand just as state support was contracting. The safety net was being stretched at both ends: more people needed services, and less money was available to provide them.

Employers and Plans Explore New Benefit Designs

Rising costs spurred employers and health plans to increase consumer cost sharing and consider new benefit structures, including tiered provider networks that charged patients more for higher-cost providers and consumer-driven products built around high deductibles and personal spending accounts. Consumers, meanwhile, remained concerned about network stability. The tension between health plans and providers that had characterized the Seattle market in previous rounds continued, with disputes over contract terms and payment rates periodically threatening to disrupt provider networks.

Quality Initiatives and Provider Competition

Quality improvement initiatives were gaining momentum in the Seattle market, with employer coalitions and health plans increasingly focused on measuring and reporting provider performance. At the same time, competition for profitable services intensified as physicians expanded ancillary services such as laboratory testing and imaging, while hospitals emphasized high-margin specialty areas like cardiology and neonatal intensive care. These parallel developments -- quality measurement alongside revenue-driven service expansion -- reflected the competing pressures that defined Seattle's health care market during this period.

Sources and Further Reading

HSC Community Tracking Study site visits, Seattle, 1996-2002. | Mays, Glen P., et al., Community Report No. 3, Center for Studying Health System Change, Winter 2003. | HSC Community Tracking Study Household Survey data on Seattle consumers' access to care, 2001.